6 Aug 2017

Slice of Heaven - Choices

From Slice of Heaven, 10:00 am on 6 August 2017

It’s obvious that immigration has changed New Zealand in the past. But how will it change us in the future? In the final episode of Slice of Heaven, Noelle McCarthy visits a Northland town where old questions are being asked anew. 

A fence in Whatuwhiwhi with sings on it expressing objection to foreign development.

Local objection in Whatuwhiwhi to foreign development. Photo: John Daniell/Radio NZ

“There’s that real fear our fisheries will go kaput, our water will be polluted beyond belief...we’re all going to end up speaking Chinese…that’s already happened here but it wasn’t done by Asians.” - Slice of Heaven, Ep 4.

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And in a series of letters, economists Michael Reddell and Hautahi Kingi debate the benefits and costs to New Zealand of immigration. Michael Reddell opens the conversation:

Dear Hautahi,

Even though we’ve been running one of the largest immigration programmes anywhere for decades, there is little or no specific evidence that the average New Zealander has benefited. In fact, productivity - the basis of long-term prosperity - here has kept on drifting further behind other advanced countries. 

Academic models seemed to suggest benefits from large scale immigration. But there is still no sign of them. 

A portrait of economist Michael Redell.

Economist Michael Reddell. Photo: Michael Redell.

That shouldn’t really be a surprise. Most of the models give little attention to fixed natural resources, but perhaps 85 per cent of New Zealand’s exports are still natural resource based.  

More people means nature’s bounty just gets spread more thinly.  

And entrepreneurs have found it very hard to develop successful international businesses, based on anything other than natural resources, in such a remote location.  

Our policymakers need to pay much more attention to the specifics of New Zealand’s situation and our experience.  I’ve argued that we should abandon the Think Big experiment and substantially lower migrant numbers. We take three times as many migrants per capita as the United States does, so there is plenty of room to cut numbers, all while stepping back into the international mainstream.

Regards,

Michael

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Tena koe Michael,

I share your concern for our woeful productivity numbers. However, we disagree about the cause and the solution to this problem.

Our fall down the OECD productivity ladder has spanned decades, and has certainly preceded the relatively recent increase in immigrants. The relationship you draw between migration and productivity therefore seems somewhat tenuous.

Much evidence points in the opposite direction, as migrants tend to promote innovation.

I’m also concerned that your suggested solution may actually worsen our productivity troubles. The fact that many exporters remain agriculture-based doesn’t imply that investment should therefore continue to flow in that direction.

On the contrary, it indicates our desperate need to diversify Aotearoa’s sources of prosperity away from one that is ultimately constrained by limited natural resources, as wonderful as that bounty might be.

A portrait of Hautahi Kingi.

Hautahi Kingi. Photo: Supplied.

Implicit in this discussion, however, is the assumption that migrants should be judged solely on their productivity impact.

This is a restrictive view of migrants’ contribution to society that I’d like to revisit later. For now, I'll add that even if we do focus on one measure - productivity - we should ensure that our attribution of causation is based on evidence rather than a search to place blame.

Nga mihi,

Hautahi

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Dear Hautahi,

I focus on the decades of large-scale non-citizen immigration, not the fluctuations of the last few years. 

For decades, we’ve encouraged lots of non-citizens to come, even as large numbers of our own people have been leaving. 

That seems wrong-headed. 

And if there is blame to assign, it should rest not with the immigrants but with successive governments that have targeted a higher number of immigrants (per capita) than almost any other country does.

The experiment has failed. 

We’ve had a modest savings rate, and yet need lots of investment to accommodate rapid population growth. As a result, we’ve had the highest average real interest rates in the advanced world, and an exchange rate that never adjusted downwards consistent with our dreadful productivity performance. 

Business investment has been low - house building crowds out other stuff - and skewed away from the internationally competing sectors, including alone potential new industries. 

Productivity growth suffers further.

We agree that evidence-based policy is needed. But the officials and ministers who champion our unusually large immigration targets provide no New Zealand specific evidence of any economic gains to New Zealanders, all while selling the policy primarily as a tool to boost economic performance.

Regards

Michael

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Kia ora Michael,

Aotearoa is certainly "capital-poor".

But this relates to things like a housing-biased tax system and low population density rather than immigration. So I’d like to challenge the default "improve productivity or leave" position by recognising migration for what it is - a global phenomenon whose biggest justification is an economic one.

Barriers to movement reduce world GDP by about US$70 trillion per year.

By wasting most of humanity’s labour, these severe economic distortions dwarf those from, say, trade restrictions.

They also have enormous humanitarian consequences because the best way to reduce poverty is to let people move.

And because income inequality is higher between than within countries, the liberal immigration policies of countries like Qatar, despite their flaws, lower world inequality per capita by more than the complete hypothetical elimination of inequality within the OECD.

Immigration discussions should begin with this reality.

A sign on a fence in Whatuwhiwhi - "No Asian invasion." The word "asian" has been painted over.

Local feelings are running high in Whatuwhiwhi. Photo: John Daniell/Radio NZ

This doesn’t imply that borders should therefore be open – cultural, employment and security impacts need consideration. But it suggests we should have good reasons to participate in a scheme that sacrifices trillions of dollars and keeps millions of our fellow humans impoverished and deprived of the joys afforded to those of us who won the lottery of birth.

Best,

Hautahi

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Dear Hautahi,

New Zealanders aren’t just lucky. 

We and our ancestors have built and maintained cultures and institutions that enable us to make best use of our people and natural resources.  In part, that involved importing en masse people, institutions, and cultures from the then-leading economy (the UK). 

In the long run, immigrants bring their economic destiny with them. 

That’s why those $70 trillion estimates are simply wrong. They assume that huge numbers of people could shift and yet not change the things that make the recipient country successful. On a small scale - 10000 a year say - that is probably true.  On a large scale, it is not. 

Importing 20 million people from poor countries, with weak institutions, would be likely to improve their lot, and reduce inequality between us and them. But that convergence would probably involve making New Zealanders materially poorer. 

That’s not my aspiration.

Immigration policy should be made primarily in the interests of New Zealanders. Advocates consistently fail to show that New Zealanders have been benefiting.

If the current policy is robust – benefiting New Zealanders - we need stronger evidence. Otherwise we should abandon our failed exceptionalism, and markedly cut back the target inflows.

Regards,

Michael

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Kia ora Michael,

I offered the $70 trillion figure as a middle-of-the-road estimate from decades of research that accounts for the factors you suggest. You dismiss it as unserious, but it’s based on orthodox growth theory that is commonly invoked to promote mainstream policy like free-trade.

People simply produce more stuff in countries that allow them to do so.

You argue that migrants somehow transmit low productivity via the institutions they carry with them.

But, short of military invasion, there’s no evidence that migrants do this. Quite the opposite. Do Indians, for example, who are among the richest ethnicities in Anglophone OECD countries, bring poor institutions with them?

The case against migration cannot be based on an argument against its enormously positive effect on world income and well-being, but rather a concern for potential domestic consequences.

We should certainly take these concerns seriously. For example, migrants may reduce some workers’ wages. But the effects are relatively minimal, especially compared to those faced by locals during the historical “en masse” migration that you favor.

And rather than dismissing migration altogether, we could instead explore ways around these negative consequences, such as migration taxes, that would give us all a fairer slice of this heaven.

Best wishes,

Hautahi

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Slice of Heaven was produced for RNZ National by Noelle McCarthy and John Daniell for Bird of Paradise Productions Limited in association with Massey University. The sound engineer was Andre Upston. Thanks to Dave Dobbyn for the title and theme and to all the musicians who generously allowed us to use their music.

The executive producers were Justin Gregory and Tim Watkin. You can subscribe or listen to every Slice of Heaven podcast on iTunes, Spotify or at radionz.co.nz/series.

Photo: Massey University

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